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Examination Paper Semester I: Financial Management IIBM Institute of Business Management Semester-1 Examination Paper MM.100 Financial Management Section A: Objective Type (30 marks) • This section consists of multiple choice & Short Notes. • Answer all the questions. • Part One carries 1 mark each & Part two carries 5 marks each. Part one: Multiple choices: 1. The approach focused mainly on the financial problems of corporate enterprise a. Ignored non-corporate enterprise b. Ignored working capital financing c. External approach d. Ignored routine problems 2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the stipulated period a. Cumulative preference shares b. Non-cumulative preference shares c. Redeemable preference shares d. Perpetual shares 3. This type of risk arise from changes in environmental regulations, zoning requirements, fees, licenses and most frequently taxes a. Political risk b. Domestic risk c. International risk d. Industry risk 4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal a. Future cost b. Specific cost c. Spot cost d. Book cost 5. This concept is helpful in formulating a sound & economical capital structure for a firm a. Financial performance appraisal b. Investment evaluation c. Designing optimal corporate capital structure d. None IIBM Institute of Business ManagementExamination Paper Semester I: Financial Management 6. It is the minimum required rate of return needed to justify the use of capital a. From investors b. Firms point c. Capital expenditure point d. Cost of capital 7. It arises when there is a conflict of interest among owners, debenture...

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Robert · Accepted Answer

Section A – Part One 
1) Ignored working capital finance 
2) Redeemable preference shares 
3) Political risk 
4) Spot cost 
5) Designing optimal corporate capital structure 
6) Cost of capital 
7) Agency costs 
8) Legal requirement 
9) Liquidity risk 
10) Beta
Section A – Part Two 
1) Annuity type of cash flow means similar amount of cash flows across several period. 
Suppose a land owner has rented his vacant land to a tenant for $10000 per annum for 
ten years. This $10000 is annuity cash flow 
2) Portfolio risk means variability of the returns of the portfolio from the average return 
of the portfolio. It is generally measure by standard deviation. Higher the standard 
deviation, higher is the portfolio risk and vice versa. 
3) Loan amortizations means a specific annuity is paid for 10 years and the whole loan 
amount of repaid along with interest in the 10 years. In the initial years, interest 
portion of annuity is high and in the later years, the principal portion of annuity is 
high. 
4) NPV means present value of cash outflows over and above the present value of cash 
inflows. It is calculated by using a discounting rate called the “cost of capital”. IRR 
means the actual rate of return earned from the investment. If the cash flows are 
discounted using the IRR, the NPV of the project shall always be zero. Positive or 
negative NPV will always only when the discounting rate is either lower or higher the 
IRR.
Section B – Case I – Answer 1 
Financing appropriate to each firm are as follows: 
1) APT INC –.

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